Netflix and Disney have a Serious Competitor!

An explainer on how the biggest telecom company of the United States made an 85 billion dollar blunder.

Today we bring to you, the tragic tale of a company that spent billions of dollars in pursuit of supremacy. Destiny kept showing red flags, but it scorned them all and marched along confidently. Until one day, it could not live under the burden of its own decisions. 

But, there is triumph in this failure, and lessons in its action. And above everything, this event is set to change the course of OTT and the entertainment industry forever.

So sit tight, as we walk you through the tale of AT&T, the biggest telecom company in the United States.

Almost all stories begin with ambition. And, so did the story of AT&T. 

It was the year 2014. AT&T was a big name in the telecom sector. But, the space was getting more and more competitive, with all the telecom companies undercutting their prices to woo customers. Now, AT&T wanted to be legendary and differentiate itself from others. It did not want to be caught in the whirlwind of discounts. For AT&T, the real competition was the likes of Google, Amazon and Facebook. It ultimately wanted to build a big digital advertising arm. And, to achieve greatness, it was ready to go all-in. This marked the beginning of AT&T’s romance with entertainment.

With hopes to bundle Satellite TV with its own telecom services, the company first acquired DirecTV for $67bn in 2015. Close on its heels, came another deal in 2018. This time, the deal was more glamorous and managed to move a lot of eyeballs, including those of Donald Trump, the former US President. We are talking about a $85bn deal with Time Warner that gave AT&T some of the powerful ammunition in entertainment: CNN, HBO and Warner Bros. 

But, the deal was not an easy one. The U.S Department of Justice (DoJ) protested that this merger was anti-competitive. 

You know, how when big companies come together, they can create a monopoly kinda situation, by destroying competition. Ultimately they charge a high price for the output, and the common man stands to lose. Yes, that’s what DoJ was scared of. But, AT&T won the case. In fact, it was so excited about the deal that it gave a $2mn bonus to Stankey, the AT&T executive who was overseeing the deal!

Now, fast-forward to 2021. AT&T is spinning-off DirecTV in a new company and selling off Time Warner to Discovery.

Woah. What happened?

Well, the world has been moving at a quick pace. And, AT&T’s leadership failed to keep up with that.

Entertainment is not AT&T’s core business. It was trying to do things that it had no experience with. The bet it had taken was a big one. The debts had mounted up to $190bn, the highest in a non-financial company. The scene looked extremely grim for them. It had to do something completely out-of-the box, to justify its moves. 

But, it forgot to do one thing. Adapt with changing times.

The consumers quickly got disenchanted with satellite TV. And so, DirecTV’s user base kept going down. OTT was rising, but AT&T did not bother to do anything about it. The pandemic came like a hammer on the nail and even took away Warner Bros’. box office revenue from its pocket. All doors were shut. What option did it have now?

Simple. OTT. And, this is how, in May 2020, the world was introduced to a new OTT, HBO Max.

But, things were not quite that simple. You see, Netflix has a war-chest to spend on new content. And so does Disney. Could AT&T afford to splurge so much, given its surmounting loans? Could it afford to pivot its focus from telecom to entertainment? 

Nope. Not all fights are worth fighting. (Tweet this)

While AT&T was blinded with its grand ambitions, its rivals took an easier path to achieve what AT&T had originally set out to achieve. In order to differentiate their services, Verizon and T-Mobile came up with joint promotional offers, in partnership with Netflix and Disney+. The rivals shifted their focus to 5G, while AT&T’s energy got diverted to entertainment and OTT.

And, this was the frantic moment of realization. The realisation of a mistake made in the past. But, carrying it any longer would have been a bigger mistake. So, AT&T decided to right the wrongs. Nothing is lost, it is still the biggest telecom operator in the country and it can bounce back like nothing happened.

And look, what we, the consumers get! A worthy rival for Netflix and Disney+, that could be worth $150bn! For context, Time Warner and Discovery together spend about $20 bn yearly on content as against $17 bn spent by Netflix; Together, they have 100 mn subscribers- Disney+ recently surpassed that feet.

But, isn’t this space exploding now? What is different about this new OTT?

Well, don’t you ever feel the need for trash watching? Some random person roaming some random street and eating some random food?

Finding such content on Netflix and Disney is tough. But, we grew up watching stuff like that on Discovery. And well, for serious high quality content you can trust HBO and Warner Bros. All in all, the synergies make sense. 

Things are looking up for AT&T. It did not cling on to the dead-weight and that’s what is going to keep it afloat. A lesson worth learning! Isn’t it?

We would love to hear from you! What’s your takeaway from this corporate thriller? Tweet your thoughts away!

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